Early Retirement While Living Abroad

July 9, 2012 · Posted in Travel 

When presented with the raw numbers of the expat lifestyle, most people shake their head in disbelief. They think it just isn’t possible to have the same standard of living and amenities as back in the United States for a mere $8,000 to $10,000 per year, but the reality is that it is very much the truth. In fact, it is the primary reason most travelers are choosing to have a base of operations outside of the U.S. As of 2010, the median cost of living (according to the U.S. Census Bureau) for a single, working adult is around $25,000 per year. When you compare 25k to 8k-10k per year, the numbers don’t lie. That extra money could be yours for an early retirement…so long as you are willing to take it.

The median wage (again, according to the U.S. Census Bureau) as of 2010 was the same: $25,000 per year. That is take-home pay, after taxes. The pre-tax number is just above $36,000 dollars. But the other benefit most people don’t know about is the fact that when you live abroad as an independent expat you don’t have to pay the same tax rates that you do while living in the United States. Choosing a country that has a tax treaty with the U.S. means you can pay the local rate of taxes in your chosen country rather than the higher rate back home, effectively allowing you to retain even more of your salary and thus obtain an early retirement.

Most countries outside of the industrialized West still have all of the same amenities and luxuries that people in the “first world” countries have, but the cost of living is significantly lower. As a general rule, places like Colombia, Bulgaria, Mexico, Italy, Greece and beyond hover between the $8,000 and $10,000 range, which means you can head there as an expat with your pre-tax salary of $36,000 per year and live accordingly. What this means for the savvy digital nomad is that you can put a significant portion of your income back in your pocket rather than merely breaking even year after year as you would back home.

The beautiful thing about the expat lifestyle is that you don’t have to be part of the current work force to take advantage of the lowered cost of living in other countries. Pensioners have been choosing to retire overseas for years, and this is one of the primary reasons. You can take your $1,000 a month pension (or rough equivalent) and use it in a place like Cancun, Mexico where you can live on $600 per month, leaving you with $400 per month to spend as you see fit. And because the healthcare is free you don’t have to spend hundreds of thousands on medical fees, plus you have access to the beach and a lush, tropical environment to enjoy every day of the week.

Living abroad as an expat means you can reduce your working hours if you choose, because you need significantly less to pay for your cost of living. Or you can do as many other professionals are doing, which is working abroad for three to five years, working normal hours on your old salary and keeping that money so you can enjoy an early retirement by the time you are 30 or 35, rather than waiting until you are 60 or 65. When you can buy three bedroom house in a place like Italy for $35,000, it’s easy to save up in a few short years and retire comfortably at an early age.

If you have ever questioned traveling full time, there’s no time like the present to get your start. The reduced cost of living is one of the least important reasons.

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